13 October 2015
FinTech and the Internet of Things Evolution?
The plenary debate on the second day of Sibos 2015 addressed bankers concerns that the Internet of Things (IoT) and FinTech newcomers might take revenue away from banks, an issue also addressed during an EBA update as bankers in Singapore debated if their concerns were valid or over-the-top (OTT)? Meanwhile, other sessions on Tuesday 13th October discussed the need to reinvent correspondent banking & just how fast is real-time?
“We are threatened with disintermediation by new companies picking the cherries in our value chain,” said Michael Gorriz, Group Chief Information Officer, Group Technology & Operations, Standard Chartered, during the Big Issue Plenary debate on Day 2 of Sibos 2015 in Singapore’s Marina Bay Sands resort. “Banks used to earn money by fees, interest arbitrage and so on, but people now, especially in the retail space, are used to getting things for free.”
According to fellow panellist Patrick Maes, Chief Technology Officer, Strategy and Planning, Global Technology Services & Operations at ANZ, financial technology (FinTech) firms make money by selling convenience. “Banks will have to move to becoming providers of value-adding convenience themselves. That is a model customers are willing to pay for.”
Banks’ internal IT teams also need to cater for increased connectivity in a world where the Internet of Things (IoT) is prevalent and commerce is online or on the mobile handset. “The number of devices connecting in an IoT world is going up and up, but banks still have to be safe, reliable and secure,” cautioned Oliver Bussmann, Group Chief Information Officer, UBS. Although he did admit: “There will be a move away from a centralised to a decentralised model.”
The Internet of Things (IoT) and proliferation of mobile channels is already changing customer expectations, but do these systems have the scalability and flexibility to support new payment models and channels securely? Can they comply with the necessary standards and regulations to ensure resilience? These topics were addressed in the Day 2 plenary debate at Sibos 2015, alongside talent spotting and application programming interface (API) banking, which essentially means the ability to have a service orientated architecture (SOA)-like structure that is flexible. Services should be able to be swapped in and out at will by internal or external IT teams operating within an agreed API framework. How open the APIs should be was, however, a moot point with concerns expressed about banks possibly losing their niche.
Panellists were generally in favour of API banking, however, as long as it was done in a safe, secure and compliant environment. ANZ’s Maes explained that for him the API banking technology approach simply meant the ability to decouple complex legacy systems and become more flexible. “For example, how can you support real-time payments? By using an API,” he said.
ANZ’s Maes went on to explain that his bank is working with a number of innovation incubation hubs and universities, in order to learn from them and use that FinTech knowledge to address banking challenges they face. This outside knowledge could, for instance, be used to assess how best to use block chain technology and so on.
Is Real-time the Real Deal?
Day 2 at Sibos 2015 in Singapore started with a Market Infrastructure (MI) session around real-time payments, which was entitled ‘Real-time: How fast is too fast?’.
According to Karin Flinspach, Head Of Cash Products, Transaction Banking, Standard Chartered: “The real-time debate is being driven by peer-to-peer (P2P) consumer demands, but we’re seeing corporate demand rise too, as new instant payment services rollout.
“Real-time services are now in Taiwan; Japan; Australia is imminent; and we’ve got the FAST service in Singapore,” she added, laying out the extent of real-time payment infrastructures in Asia alone. Thailand‘s interbank payments network NITMX has also just signed an exclusive letter of intent with VocaLink to develop its own real-time mobile payments ecosystem in the country. Yet another new market infrastructure for the panel to debate.
Flinspach cautioned, however, that just because a service is available 24x7 doesn’t mean you should necessarily use it 24x7. “Different stakeholders have different real-time needs,” she said. Corporates, for instance, would likely be more interested in getting data-rich information in a payment – rather than pure speed – which may not fit into a corporate treasury’s batch-processing technology model anyway.
“We are focused on ensuring that the clearing and settlement works, regardless of the end use,” said Hays Littlejohn, CEO of EBA Clearing, adding that if you do the payments infrastructure right, with the correct standards, then interoperability and much else besides follows. Littlejohn did admit, however, that in a single euro payment area (SEPA) environment “how slow is too slow” might be a better title for the Sibos session, in light of the fact that some European countries are still using national payment mechanisms. These adversely impact how seamlessly a corporate treasury can process payments cross-border.
For Craig Tillotson, CEO of the UK Faster Payments Scheme Ltd, 24x7 service is very important because “we do more processing now in the UK outside of normal banking hours, than we do inside… Eight years into the FPS service we’ve found people are using it in unexpected ways – to make a payment at 3am for instance – and you’ve got to cater for that. Consumers aren’t interested in how complicated that is or any back-end technical issue, they just want service.”
“Mobile channels are what have changed the game in terms of speed expectations,” added Tillotson, referencing Paym the mobile P2P consumer payment service.
In regard to concerns expressed about liquidity, security and access, Tillotson said that most banks have channel limits, risk appetites and fraud procedures in place to mitigate risk. FPS also has three settlement cycles per day in the UK and cash pre-funding prudential requirements. “You do need processes and protocols to maintain liquidity in an emergency situation. It is something we plan for.”
EBA's vision for payments in 2020
A panel of senior bank practitioners from the Euro Banking Association (EBA) discussed their ‘Vision for Payments in 2020’, and the regulatory and FinTech disruption challenges ahead.
The moderator, Gilbert Lichter, Vice President at EBA Group, framed the retail banking & payments conversation by reminding everyone that the European Parliament has just passed the Payment Services Directive (PSD) II regulation, which will open the payments arena up to new non-bank and non-card payment service providers (PSPs) which want to challenge established banks.
A series of presentations followed as the EBA members updated the Sibos audience about the new Open Forum on Pan-European Instant Payments.
The aim of the Open Forum on Pan-European Instant Payments is get more retail customers and non-bank players involved in early stage discussions – unlike the initially bank-driven SEPA project – so that customers are served better as Europe gears up to roll out its own real-time payment infrastructure next year.
Jan Paul van Pul, of ABN Amro was conscious of the need to learn lessons from the SEPA project as the eurozone area in Europe goes real-time, especially as he chairs the SEPA migration action roundtable (SMART) initiative. This is designed to “smooth the customer journey for corporates”.
Van Pul candidly admitted that corporates hadn’t been satisfied so far with SEPA, citing “too many ‘flavours’ of XML” as a problem; “tax differences country-by-country”; and the SEPA 2.0 2016 deadlines when niche national direct debit and other such structures should be swept away, as key problems.
“It’s important to define now what we mean by instant payments and to ensure that we introduce an interoperable system in Europe quickly this time, which is seamless,” said van Pul.
Daniel Szmuckler of the Euro Banking Association presented on the Digital Customer Service Interface (DCSI) team he leads, which is “the electronic alternative payments working group” in mainland Europe. It is tasked with catering for the new wave of PSPs that is expected to enter the market under the PSD II regulation and ensuring that API Banking is possible and new FinTech disruptors can access the market. Ensuring an on-going role for banks in this challenging environment will, of course, also be a key consideration.
Szmuckler sounded a warning though that it is down to banks to respond to the FinTech and PSP new entrant challenges. “I believe you have to stretch the bank’s brand from the infrastructure layer, which is being commoditized, into the services layer,” he said. The DCSI initiative is designed to support this move into value-adding services. The interface project will also “serve corporate and FinTech customers better,” added Szmuckler and act “like a universal plug adaptor” enabling access.